Theft and Fraud is a Casualty Tax Loss

In 2017, major news stories surfaced of celebrity theft/fraud & casualty losses:

Actor Dustin Hoffman and son Jacob were apparently defrauded of millions of dollars in a real estate investment with Paul Manafort’s son-in-law.

Alanis Morisette had millions of dollars embezzled by her business manager, and in a separate in incident, lost several millions dollars of jewels stolen from her home.

Under IRC Sec. 165 losses of assets from casualties/theft (including fraud) are subject to an ordinary income tax loss deduction (not a capital loss).

Both casualties (e.g. theft, fire, hurricanes) and investor fraud (a form of theft in California see Cal Penal Code Sec. 484 (a) may enable the victim to declare a tax loss in the amount of the lost property.

In the federal case of Gerstell v. Commr. “theft loss” is determined under state law so in California and New York criminal statutes which include fraud as theft give rise to a tax loss for defrauded investors for loss of their investment.

Taxpayers who declare the casualty (theft) tax loss on their personal tax returns may gain the following tax benefits:

1. Tax Refunds: the taxpayer can amend personal tax returns, carry the tax loss back for 3 years and seek tax refunds (up to the amount of tax previously paid)

2. Tax Free Income: the taxpayer can carry the loss forward for up to 20 years and offset taxable income (up to the amount of the declared tax loss).

Please visit our Casualty Theft Tax Loss webpage for a concise summary of Federal/California Law.

A more detailed explanation can be found in my book, The IRS and Defrauded Investors: Theft Tax Loss, available as an ebook on Amazon.

By using this tax planning I was able to save a celebrity musician over $5m. See testimonial from “B” on home page.

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